Hong Kong’s Securities and Futures Commission has fined Ardon Maroon Fund Management, run by former Wall Street bank executives, HK$80,000 (US$103,000) for misconduct in the firm’s involving in the risky practice of cross trading.
In a cross or wash trade, the trader opens buy and sell orders for the same stock without recording the trade on the exchange. A cross trade also occurs when a broker acts as a market maker by matching buy and sell orders for the same security across different client accounts, without sending the orders to the stock exchange to be executed.
According to the regulator’s investigation, it found that Ardon Maroon entered equal and opposite transactions on 15 million shares of a company that was listed on the Stock Exchange of Hong Kong, matching details including the product, quantity, price, and timing of those trades and orders.
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The review also found that authorized agents of Ardon gave instructions to a brokerage to execute the cross trades, which resulted in the AM Fund conducting a wash trade, an activity that is not permitted on most major exchanges. Ardon Maroon then instructed another broker to deliver the relevant shares to settle the wash trade. The trades took place on 8 August 2014, the agency said.
The company was also deemed not to have abided by the SFC’s code of conduct by failing to employ adequate internal controls to ensure that it remained compliant with the regulations.
In a statement, the SFC said that in deciding the penalty it had taken into account the fact that the cross trade was an isolated incident, as well as Ardon’s cooperation with the regulator in resolving its concerns.
According to the SFC’s statement of disciplinary action, Ardon had an otherwise clean disciplinary record with the SFC and did not benefit from the cross trade.